Question Completion:
Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 70,000 units of RX5 follows.
Direct materials $4.00
Direct labor 8.00
Overhead 9.00
Total costs per unit $21.00
Answer:
Haver Company
1. The total incremental cost of making 70,000 units of RX5 is:
= $1,029,000.
2. The total incremental cost of buying 70,000 units of RX5 is:
= $1,400,000.
3. The company should make RX5. Buying 70,000 units of RX5 will cost the company $371,000.
Step-by-step explanation:
a) Data and Calculations:
Variability of costs: 100%
Direct materials $4.00 100% = $4.00
Direct labor 8.00 100% = 8.00
Overhead 9.00 30% = 2.70
Total costs per unit $21.00 $14.70
Fixed cost:
Overhead = $6.30 ($9.00 * 70%)
Offer from an outside supplier to supply 70,000 units of RX5 at $20.00 per unit
Total incremental cost of making 70,000 units of RX5 = $1,029,000 (70,000 * $14.70)
The total incremental cost of buying 70,000 units of RX5 at $20,000 is:
= $1,400,000 (70,000 * $20.00)
Difference = $371,000 ($140,000 - $1,029,000)